When opening an Individual Retirement Account (IRA), it’s important to consider any fees that might be involved. Typical IRA fees may include annual maintenance fees and account closure fees. You may also pay a fee to roll funds over to an IRA or close your account and transfer funds elsewhere.
Factoring in fees matters when deciding where to open an IRA. The more you pay in fees, the less of your investment dollars you get to keep. Understanding the various IRA fees you might encounter can make it easier to choose the right option for your retirement savings.
Key Points
• IRAs, including traditional and Roth, may incur fees such as maintenance (custodial) fees, and account closure fees.
• A good IRA maintenance fee is ideally below 1% annually, with some brokerages waiving fees entirely.
• IRA fees can be charged one-time, monthly, yearly, or per transaction, affecting overall investment returns.
• Roth IRAs are funded with after-tax dollars, offering tax-free qualified distributions, while traditional IRAs typically use pre-tax dollars with taxable distributions.
• Comparing fee schedules of different brokerages is crucial to minimize costs and maximize retirement savings.
Fees IRAs Can Charge
Brokerages and banks that offer retirement accounts can charge a variety of IRA fees and some are more fee-friendly than others. Some of the most common fees you might encounter with an IRA can include:
• Account maintenance fees. Some brokerages charge IRA maintenance (or custodial) fees simply for having an account. You may pay a flat fee or a percentage of the assets in your account on a monthly or yearly basis. It doesn’t matter what type of account you have, as there’s typically no real difference between traditional IRA and Roth IRA maintenance fees.
• Account closure fees. If you open an IRA at one brokerage, then decide to close it, you may pay a fee to terminate your account.
It’s difficult to determine how much an investor might pay in IRA fees on average, as every brokerage follows a different fee schedule. For example, you might pay a small account maintenance fee at one brokerage, while another charges no maintenance fee at all.
As for fees for opening a Roth IRA or traditional IRA, many financial institutions don’t charge this fee. If they do, account setup fees may be in the neighborhood of $25 to $50. Additionally, it could cost $100 or more to close your account and move it elsewhere.
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How Are IRA Fees Charged?
Traditional IRA fees and Roth IRA fees are set by the financial institution that’s offering the account. Typically, there are fours ways fees can be assessed:
• One-time
• Monthly
• Yearly
If you’re worried about losing money in an IRA, it’s important to know when fees can apply and how much you’ll pay. You may be focused on making sure your investments do well to avoid losses, but fees can easily leech away your earnings little by little if you’re not paying attention.
Reviewing a brokerage’s fee schedule before opening an IRA can give you a better idea of what you might pay in terms of upfront fees and ongoing costs. You can also review the prospectus for each mutual fund or ETF you plan to invest in to see how much you might pay for the expense ratio. The expense ratio is set by the mutual fund company, not the brokerage.
The Takeaway
Opening an IRA can get you closer to your retirement savings goals, while allowing you to enjoy some tax benefits along the way. When deciding where to open an IRA, it’s important to zero in on the fees as that can affect your overall account growth long-term.
If you’re ready to get started with retirement planning, it’s easy to open an IRA with SoFi. You can get your account up and running in minutes online, and choose between automated or DIY investing to help you reach your goals.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
What is a good IRA maintenance fee?
A good IRA maintenance fee is no fee at all, as some brokerages waive annual and monthly account maintenance fees.
How are fees paid in an IRA?
Some IRA providers charge account maintenance fees that you may pay one time, monthly, or annually. Check with the financial institution offering the account.
Are IRA fees higher than 401(k) fees?
A 401(k) can charge its own fees and whether they’re higher or lower than IRA fees largely depends on who manages the plan. Fees for a 401(k) may outpace IRA fees in some instances.
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